The Odds of a Rate Hike Are Soaring Ahead of the Sept. 16 FOMC Meeting

Key Points

• Although the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite have all jumped by double digits this year, persistently elevated inflation may soon end the party.
• The CME Group’s proprietary FedWatch Tool points to a heightened probability of a rate hike in September and/or before the end of 2026.
• While a Federal Open Market Committee (FOMC) rate hike can be viewed as necessary, it could also be the catalyst that ends Wall Street’s artificial intelligence (AI)-fueled bull market.
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With more than eight months in the books, it's shaping up as another phenomenal year for investors. The Dow Jones Industrial Average (DJINDICES:^DJI), S&P 500 (SNPINDEX:^GSPC), and Nasdaq Composite (NASDAQINDEX:^IXIC) have managed to shake off several headwinds to rally 11%, 13%, and 14% this year, through the Labor Day weekend.

But the stock market's streak of fending off negative catalysts may soon come to an end. Persistently elevated inflation is a serious problem, and the odds of the Federal Reserve hiking interest rates at the upcoming Federal Open Market Committee (FOMC) meeting on Sept. 16 are rapidly climbing.

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Fed Chair Kevin Warsh has vowed to deliver price stability. Image source: Official Federal Reserve Photo.

The probability of an FOMC rate hike is rising

While forecasting what Fed Chair Kevin Warsh and his colleagues will do next is a mixture of science and luck, the CME Group's (NASDAQ:CME) FedWatch Tool attempts to get to the answer by accounting for changes in 30-day Fed Funds futures prices.

As of Aug. 7, there was a 44.4% probability of a quarter-point rate hike at the FOMC's Sept. 16 meeting. As of the early morning hours of Sept. 8, the odds of a rate hike have jumped to 60.6%. We're witnessing a similar dynamic for future meetings, with the odds of a rate hike before the end of the year (i.e., at the Sept. 16, Oct. 28, or Dec. 9 meetings) now above 85%, compared to roughly 77% on Aug. 7.

JUST IN 🚨: The odds of a rate hike next week have climbed to over 60% pic.twitter.com/yO1CXq2kv6

— Barchart (@Barchart) September 8, 2026

If you're wondering what changed, look no further than the latest jobs report and Kevin Warsh's comments at Jackson Hole on Aug. 28.

The Sept. 4 U.S. jobs report showed that 162,000 jobs were added in August, with the unemployment rate standing pat at 4.1%. While a stronger job market sets a solid floor in terms of economic growth, it also threatens to fan the flames of inflation, which reached a three-year high of 4.2% in May.

The more pronounced jump in rate-hike odds came courtesy of Fed Chair Warsh's comments. He proclaimed, "The Fed's predominant focus right now should be on prices," and for the first time stated that inflation needs to move to the central bank's long-term 2% target "at sufficient speed." The introduction of a time element to Warsh's desire to deliver price stability makes a rate hike more likely.

Image source: Getty Images.

Interest rate hikes may be a death knell to Wall Street's bull market

While investors are likely to view an interest rate hike as a necessary evil, there's a very real possibility that it could end Wall Street's nearly four-year bull market run.

The artificial intelligence (AI) infrastructure build-out is the stock market's lead catalyst. The jaw-dropping amount of capital being spent on data centers is, in part, financed with debt. If Warsh and his FOMC peers vote to raise rates on Sept. 16 or at a meeting shortly thereafter, the cost of financing the expansion of AI data centers will climb.

Stock Market Shiller PE Ratio on the verge of taking out its Dot Com Bubble all-time high 🚨 🤯 👀 pic.twitter.com/CtCmSgWnLt

— Barchart (@Barchart) July 11, 2026

Considering that we entered 2026 with the second-priciest stock market in history, there's no margin for error with the AI infrastructure build-out. If this expansion slows, even marginally, the subsequent rerating of growth projections and/or premium AI stock valuations could spell disaster for equities.

Suffice it to say, all eyes will be on Kevin Warsh and the FOMC come Sept. 16.

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Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CME Group. The Motley Fool has a disclosure policy.